The Financial Planning Association called on Congress late last month to approve two legislative proposals that would create stronger accounting reform and bolster investor confidence in the aftermath of recent accounting scandals involving Enron, WorldCom, Xerox, and other publicly traded companies.
The first of the two proposals, S. 2673, the Public Company Accounting Reform and Investor Protection Act of 2002, is awaiting Senate action after the July 4 holiday. This proposal goes further than a recent Securities and Exchange Commission proposal that urged establishment of an independent accounting oversight body. In a prepared statement, FPA President Bob Barry said the bill would strengthen the independence of the accounting oversight body and would place restrictions on accountant consulting services and audits.
The FPA also strongly supports a second bill (H.R. 3764) authorizing a 77% increase in the SEC’s budget. Most of the new funding would go toward increasing accounting and Wall Street oversight, with allocations going to the SEC divisions of corporate finance and enforcement. H.R. 3764, the Securities and Exchange Commission Authorization Act of 2002, passed the full House 422-4 on June 26 and will now go to the Senate.
Two years ago, the FPA also supported a proposed SEC rule that would have prohibited certain consulting services by firms engaged in the independent attest function (i.e., audits, reviews, and similar services). That rule was never adopted.
Barry also added in his statement that each of these bills is important to both financial planners and their clients. “Financial planners rely implicitly on the accuracy of the financial statements reviewed by CPA firms,” he said. “Even more reason to ensure accurate financials is the tendency by many employees to continue to overconcentrate their 401(k)s in [their own] company stock and not diversify, even after Enron.”